Need Tally
for Clients?

Contact Us! Here

  Tally Auditor

License (Renewal)
  Tally Gold

License Renewal

  Tally Silver

License Renewal
  Tally Silver

New Licence
  Tally Gold

New Licence
 
Open DEMAT Account with in 24 Hrs and start investing now!
« Top Headlines »
Open DEMAT Account in 24 hrs
  How to check income tax return (ITR) status
 Income tax rules: How much cash can you receive in one day to avoid an I-T notice?
 Tax saving tips: How you can reduce tax burden under the new regime
 Condonation of delay under section 119(20) of the Income-tax Act, 1961 in filing of Form No. 9A/10/108/10BB for Assessment Year 2018-19 and subsequent assessment years
 Condonation of delay under section 119(2)(b) of the Income-tax Act, 1961 in filing of Form No. 10-IC or Form No. 10-ID for Assessment Years 2020-21, 2021-22 and 2022-23
 New GST form notified to help taxpayers adjust tax demand amount: Here's how to use
 ITR filing deadline extended to November 15, 2024 for these taxpayers

Tax Factor: Biz income vs capital gains
June, 22nd 2007

Heres a golden chance for realty developers and bullion traders to do some intelligent tax planning. Last week, the Central Board of Direct Taxes (CBDT) allowed sharetraders the leeway to hold two portfolios one for trading and another for investment in shares to save on tax. An investor pays a lower tax than a trader in shares.

But the boards circular on the norms to differentiate between a trader and an investor will go beyond equity transactions. Realty developers, bullion and other commodity traders will also be able to divide their portfolio for tax purposes.

A realty developer can lower his tax liability if he is able to prove that he is an investor and not a land trader. He has to show that the sole motive for the investment in land is capital appreciation. The profits he makes from the sale of land will then be treated as capital gains.

If the land sold three years after the date of acquisition, the profits are treated as long-term capital gains and taxed at 20%. Short-term capital gains are taxed like any other income: the maximum rate is 30% for an individual. Realty developers, like sharetraders, hold a substantial chunk of assets as stock-in-trade.

Any gain from the sale of such assets (land) is treated as their business income and taxed at a maximum rate of 30%. Over the last few years, several realty developers have sought to lower their tax liability, citing investment as the motive for land purchase. But the tax department has rejected their claims and this has led to a spate of disputes.

The CBDT circular could minimise litigation if the developer is allowed to classify his portfolio into trading and capital asssets, said Lalit Kumar Jain, president, Promoters and Builders Association of Pune. Realty developers should be able to produce evidence from their records that a distinction has been made between land held as stock-in-trade and land held as investments. The tax officer will use all the tests to check if a developer is also an investor in land.

In share transactions, for instance, assessing officers will be guided by three principles whether the shares purchased were held and valued as stock-in-trade; whether the transactions were substantial or not and was the motive to rake in profits or to earn dividends. The same principles will hold good for taxpayers holding and selling different assets, including land.

Tax savings will be the maximum for traders in equities if they can divide their portfolio into capital assets and trading assets. The reason: governments decision to grant concessional capital gains tax treatment on share transactions along with the introduction of the securities transaction tax. The idea was to encourage retail participation in equities.

Normally, gains made by a sharetrader are treated as his business income and taxed at a maximum of 30%. The liability is much lower for an investor in shares: if he sells the shares after a year of holding them, he does not have to pay any tax. But if the shares are sold within a year of purchase, the gains are treated as short-term capital gains and taxed at 10%.

Many sharetraders were camouflaging their trading income as investment income to escape paying any tax. The practice may end now, if sharetraders are unable to segregate their portfolio. But if they do, they can lower their tax liability substantially. The government, though, takes a hit on revenues.

The concessional capital gains tax treatment is not available for realty builders or commodity traders. Some realty developers, who hold their assets in a trading account, claim business expenses and significantly lower their tax outgo. This cannot be done if the assets are in capital account, said a tax expert.

But the big question is whether the government will review the concessional capital gains tax treatment on shares in the coming years. Alternatively, it could look at a uniform capital gains tax treatment for all class of assets, including immovable property.

Home | About Us | Terms and Conditions | Contact Us
Copyright 2024 CAinINDIA All Right Reserved.
Designed and Developed by Ritz Consulting